Bollywood’s script goes awry as funds dry up

TNNMar 31, 2003, 12.43am IST

MUMBAI: The Hindi film industry is facing a major financial crisis. Funding from distributors, mostly earned as minimum guarantee (MG) returns before and during the making of a film by producers, is drying up. The other 'informal' source of film finance through the sale of music rights prior to the release of a movie vanished last year.

The double whammy — the collapse of music earnings along with the distributors' finance — along with the failure of the industry to open up institutional finance has created a huge question mark for the future of film-making.

Film producers were earlier confident that the MG system would bring back their investments, and even make a profit, whether their movies performed well or not. Subhash Ghai's Yaadein, now acknowledged as a flop, earned a profit of Rs 4.5 crore before it opened in theatres in July 2001. This is how the plot worked: Subhash Ghai's Mukta Arts sold the music rights to Tips Industries for Rs 9 crore, earned minimum guarantees of Rs 8.5 crore from distributors, and collected Rs 3 crore from in-film advertising. A total earning of Rs 21.5 crore against the cost of production of Rs 17 crore.

But, 18 months of flops has taken its toll on the film industry. The industry has actually shrunk in size, with KPMG estimating that revenue generation fell from Rs 4,500 crore in calendar '01 to Rs 3,900 crore in '02. No surprise as the whole year produced what trade journals call 'universal hits' — Devdas and Raaz — among the 226 films to be released by Bollywood. The writing is on the wall. Mr Ghai has so far not been able to get distributors to buy his recent release 'Ek Aur Ek Gyarah' at a price he thinks he commands. As a result, most of the distribution is being done by his own company Mukta Arts. Similarly, Rajshri Pictures too opted for a model of combining production and distribution.

Earlier, when the film flopped, it was the distributors, the exhibitors and the music company that took the hit. Kumar Taurani of Tips Industries has gone on record to state that Yaadein returned barely 50% of Tips' investment in the music. Outright buys for astronomical sums of music rights collapsed. The Rs 12-crore buy of Devdas' music by Universal was possibly the last big deal a year ago. Now it is the turn of the distributors to cry halt to bank-rolling producers who are failing month after month to get the theatre turnstiles moving.

The film industry is thus increasing seeing distributors who are demanding a reduction in the minimum guarantee (MG) earlier negotiated; or the worse scenario of default in MG payment. Typically, a distributor, when he buys the rights of a movie for a particular territory, pays around 40% of the MG between signing and the release of the movie. It is this money that is crucial for its completion.

"The remaining 60% of the MG amount either just does not come and the producer has to look for another distributor; or the distributor holds the producer to ransom and forces a reduction in the earlier negotiated MG amount," says Sanjay Bhattacharjii, COO of UTV Motion Pictures. A typical recent case is that of 'Kaante' which was sold to distributor G D Mehta for the Delhi and UP territory for Rs 2.5 crore. However, Mehta backed out because of the repeated delays in the release of the film; but when the film's producers looked for an alternative, they had to settle for a lower MG of Rs 1.65 crore with another distributor Uday Kaushik.

So what is the emerging scenario ? Most film industry observers agree that the distributor in the traditional sense is a species nearing extinction. Niraj Manchanda, who was once one of the larger distributors in the Eastern region's Bengal-Bihar circuit, told ET he had stopped his distribution business and had now turned producer with a proposed film 'Ye Wada Raha'. The poor performance of Hindi films and subsidised entertainment tax of just 20% for Bengali films had taken its toll, he said. With producers getting poor offers from distributors, the former will have to distribute their own movies and add the distribution costs to their production budget, says Adlabs' Manmohan Shetty.

This has been made easy with the exhibition chains that are coming up in the country. Groups like Inox, PVR, Shringar Films and Essel Group's E-City, who are promoting over a 100 multiplexes in metros, have made it easy for producers to strike deals directly with the exhibition network.

The flip side is of course that a source of finance for producers is rapidly vanishing. This is expected to consolidate the 'studio culture' where, like Hollywood, a few big banners like Mukta Arts, Metalight Productions, PNC, UTV and Rajshri Productions are expected to pull through with 'high-concept movies' by setting up their own distribution chains.